The last great engine of the world economy is sputtering out

The first stage of a labour downturn is clearly underway. Job offers in cyclical sectors such as restaurants and construction are plummeting. The second stage of rising lay-offs has not begun but may not be far away. The worry is that it can happen suddenly once confidence snaps, setting off the self-feeding cascade of a classic recession. 

Steven Blitz from TS Lombard said the Fed is now paying the price for its (ridiculous) policy of data dependency. “When the bad data shows up, policy is already late. There is a reason sharp downward revisions occur just before or during recessions,” he said.

Central banking is like ice hockey. You have to skate to where the puck is going, not where it is, and the lag times of monetary policy can be a year or two.

We will find out soon whether or not the Powell Fed has committed a second error by staying too tight for too long, the mirror image of staying too loose as the money supply exploded and the economy roared back at the end of Covid.

No other part of the world looks ready to take the baton as the US slows. The eurozone is still in a deep manufacturing recession. It is tightening fiscal policy by 1pc of GDP this year as the Stability Pact comes back in force. But it is China that keeps sinking further into depression, unable or unwilling to stop the onset of post-bubble debt deflation.